It's been a roller-coaster end of the week for TrueCar, (NASDAQ:TRUE). After dropping nearly 10% Thursday, shares rebounded to trade 12% higher early Friday morning, retreating to a gain near 4% by midday. The driving force behind the volatility was the conclusion of a partnership between TrueCar and AutoNation (NYSE:AN). The questions facing investors is simple: What does this mean for TrueCar's revenue, and is this the beginning of a domino effect? Let's dig in.
What's all the fighting about?
From AutoNation's perspective, America's largest new-car retailer believes TrueCar demanded too much in its contract negotiations. "TrueCar has made some onerous demands in its new contract negotiations with us that are unprecedented in my 45 years in business and are unconscionable and unacceptable," AutoNation CEO Mike Jackson said told Automotive News. "We cannot agree to them."
More specifically, TrueCar was asking AutoNation for all of its retailer consumer information -- a list of 41 data points on all vehicles sold annually -- including sales information that wasn't generated from TrueCar leads.
On the flip side, TrueCar believed AutoNation wasn't abiding by its core principles of providing prompt and accurate inventory and sales data to foster a negotiation-free and hassle-free customer experience. "We have an unwavering and long-term focus on a transparent car-buying experience," said Scott Painter, TrueCar's chief executive officer and founder, in a press release. "We're grateful for the years of cooperation we've enjoyed with AutoNation, but could not make an exception for them."
AutoNation balked at the demands, and the partnership between it and TrueCar has effectively ended. So, how big of a deal is this for TrueCar investors?
Looking at the numbers, 226 of AutoNation's 240 dealerships in the United States used TrueCar services, and that's a drop in the bucket for the latter's network of more than 11,000 U.S. dealerships. AutoNation dealers represented only 4.2% of TrueCar's total units in the first quarter of 2015, a decline from 4.6% in the first quarter of 2014. Moreover, AutoNation sales generated only 3.1% of TrueCar's total revenue in the first quarter of 2015, a small decline from the first quarter of 2014.
Looking specifically at the numbers rather than the headlines, TrueCar terminated partnerships with more than 350 dealers in the trailing 12 months for similar issues -- more than the recent setback from AutoNation's impending contract termination.
What's it all mean?
Ultimately, investors are left trying to grasp what's going on behind the scenes of TrueCar and AutoNation's ended partnership. Essentially, TrueCar is almost transitioning from being a middleman between consumers and dealerships to being a competitor of dealerships. That's because TrueCar has ambitions beyond new-car sales transactions; that includes plans of arranging financing, servicing products, and vehicle trade-in products.
In addition to imposing itself in many aspects of the automotive retail business, TrueCar is masking its consumers' information from its website by converting personal emails to a generic @Truecarcustomer.com address before they're shared with retailers, so it's more difficult for dealers to follow up with their own marketing efforts.
It comes down to this: Which company is affected more negatively by this change? The answer, in my opinion, is AutoNation.
Consumers are either going to use TrueCar's services or they aren't. Whether or not AutoNation is included in TrueCar's network is irrelevant to them. Those consumers using TrueCar will be funneled to another dealership to complete the transaction. However, for AutoNation, those leads and potential sales completions from TrueCar vanish, and aren't coming back. To put it bluntly, TrueCar has the leverage over dealerships, and the blame is solely on the latter for creating an untrustworthy environment for new-car sales over the decades.
That's likely why TrueCar's stock price is rebounding today: Because investors realize Thursday's sell-off was a knee-jerk reaction to an irrelevant contract termination, and its core business will remain largely unaffected.